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Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#131

Post by duncancarroll »

jandrewrogers wrote: post #120
macspoofing wrote: post #31

Earlier quoted context omitted.

>Renaissance is simply better than anyone in the world at finding the markets where traders are willing to pay the highest premiums for liquidity, and providing it in a timely and measured dose that ensures they skim the cream off the profit opportunity. Why are they better? This still requires the same kind of explanation as 'they are simply better at investing than anyone in the world'

Many years ago, Jim Simons took an interest in my theoretical work on discrete topology (still unpublished) in the context of this fund. Among other things, this research provided a powerful mechanism for finding relationships in data that are effectively intractable to discover by more conventional means. Many of the mathematicians associated with Renaissance at the time had diverse and impressive theoretical backgr…

I can understand that there are a limited number of people who can understand and apply the math necessary, but not that it could remain proprietary for 30 years.

Usually if a company has secret sauce, someone will leave and spin off on their own. Even Google can't retain everyone. So unless I'm missing something, any explanation has to account for why this hasn't occurred here.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#132

Post by omarhaneef »

hogFeast wrote: post #130
omarhaneef wrote: post #83

Earlier quoted context omitted.

My theory is that they use Hidden Markov Models to figure out something subtle about the market -- probably regimes. I got this impressions from several of Simons interviews, and then the recent book has added more clues. Note that the Baum-Welch algo is one of the leading algos used to solve the underlying model and Baum worked at Rentech.

There is a book that explains what Baum did (it wasn't this).

Say more.

Do you mean "The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution" which I read, or another book?

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#133

Post by SirLJ »

ceejayoz wrote: post #85
SirLJ wrote: post #71

Earlier quoted context omitted.

any successful academic in economics making money in the stock market? Or I am missing something? Maybe a Nobel winner from Chicago?

No, for the same reasons the soldier pressing the button at a nuclear test doesn't get the Nobel Prize for doing so.

like the reasons for Nobel for Fama for the wrong theory...

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#134

Post by duncancarroll »

bawana wrote: post #127

What are they talking about? Rentech went into the dumpster. https://seekingalpha.com/news/3300183-rentech-to-delist-from...

Doesn't look like that's the same Rentech: https://seekingalpha.com/symbol/RTK

"Owns and operates wood fibre and nitrogen fertilizer businesses"

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#135

Post by orbifold »

omarhaneef wrote: post #83
orbifold wrote: post #50

My long standing hypothesis on Medallion is that they figured out how to apply gauge theoretic techniques to financial markets. This fits with Simons work that he did before he founded the fund. The fact that gauge theory is applicable to for example currency trading is folk knowledge in the Havard, Princeton, IAS circles (here is for example the lecture notes of a popular lecture by Maldacena that uses currency trad…

My theory is that they use Hidden Markov Models to figure out something subtle about the market -- probably regimes. I got this impressions from several of Simons interviews, and then the recent book has added more clues. Note that the Baum-Welch algo is one of the leading algos used to solve the underlying model and Baum worked at Rentech.

This is compatible in so far as you need to estimate parameters to calibrate any such strategy. In the simplified model that is explained in the lecture notes I linked to, you would start with eq. 6.6 on page 25 as an Ansatz for the transition matrix in the Baum-Welch algorithm.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#136

Post by codingslave »

sweeneyrod wrote: post #105
codingslave wrote: post #3

Investing is like tech, its winner take all. This is like being surprised that Google dominates search

No, it's the exact opposite. The limit of how much money you can put through a given strategy mean there is an antieconomy of scale that encourages lots of small firms.

this is the complete opposite of true. I work in the industry, too busy to write up a response. But basically, the top five hedge funds are making most of the returns and are attracting most of the capital. the industry is consolidating

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#137

Post by Tycho »

dcolkitt wrote: post #90
Tycho wrote: post #5

Seems to me there's an obvious flaw in the efficient market hypothesis. It states that, essentially, you can find no sustainable edge because the market rapidly reacts to information. Meaning, if there is some information relevant to expected investment performance, investors will immediately act on it, extinguishing the information advantage. But what if the opportunity is some kind of abstract pattern that doesn't…

The efficient market hypothesis is a lot like Newtonian gravity. It's not a perfect theory, but it's a pretty close approximation that pretty much covers most any domain outside very exotic conditions. If somebody comes up to you, a random Joe Schmoe, and tells you they have an investment that consistently beats the market on a risk-adjusted basis. Well... You can pretty much guarantee that they're full of shit. Even…

If the value and momentum and size factors are legitimate, then it stands to reason that there could be other more obscure, less intuitive and more profitable anomalies. Are those limited to very small magnitudes? Maybe, but I don't see why that should necessarily be so. It seems like EMH is predicated on the idea that the only investment opportunities are ones that map to human reasoning.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#138

Post by dankohn1 »

bitcurious wrote: post #73
jjoonathan wrote: post #39

Of the wild theories I've heard to explain the Medallion Fund, my favorite is the "money wormhole." I have no finance qualifications whatsoever -- I just stick my money in index funds -- but I love a good conspiracy theory, so here goes. The idea is that you have two theoretically unrelated funds that take complementary positions with uneven odds. One sacrifices performance for the other, effectively transmitting mon…

This complements another wild theory I've heard, which is that the Medallion Fund exists to launder money from corrupt states. Say you have a $200B state pension fund - you invest a portion in the loser fund, earn a portion back as personal wealth on the winner side.

This is deeply insightful.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#139

Post by grandinj »

duncancarroll wrote: post #131
jandrewrogers wrote: post #120

Earlier quoted context omitted.

Many years ago, Jim Simons took an interest in my theoretical work on discrete topology (still unpublished) in the context of this fund. Among other things, this research provided a powerful mechanism for finding relationships in data that are effectively intractable to discover by more conventional means. Many of the mathematicians associated with Renaissance at the time had diverse and impressive theoretical backgr…

I can understand that there are a limited number of people who can understand and apply the math necessary, but not that it could remain proprietary for 30 years. Usually if a company has secret sauce, someone will leave and spin off on their own. Even Google can't retain everyone. So unless I'm missing something, any explanation has to account for why this hasn't occurred here.

They pay waaaaaaay more to keep their people. And there are powerful incentives at work - competition would seriously diminish their rewards.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#140

Post by bhouston »

Madoff has unexplained gains year over year as well based on new methods.

The explanation as offered triggers me but I haven't looked into it in detail.

For Madoff the gains were truly magical as there was little evidence he actually traded.

Interestingly, Epstein supposedly has magical gains as well with little evidence he traded.

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